Debt consolidation loans

A debt consolidation loan can seem like an ideal solution if you’re struggling with all the organisation and administration required to manage multiple debt repayments.

People with multiple creditors (such as credit cards) may consider a debt consolidation loan as a way of paying off the balances of their debts, and instead make the one repayment on the debt consolidation loan.

A debt consolidation loan could be the right debt solution for you, but there are some serious implications with regard to debt consolidation that you need to know in order to avoid falling even further into debt.

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To debt consolidate or not to debt consolidate?

Consolidation debt loans are an alternative debt solution that many PayPlan clients may have tried before entering into a Debt Management Plan (DMP) or another debt solution like an IVA

PayPlan clients have often found that consolidating their debts before seeking professional and free debt advice from an organisation like PayPlan failed to solve their debt problem or even, at worst, their debt levels increased.

Before opting for a debt consolidation loan, why not contact PayPlan for free debt advice and information about other possible debt solutions that could work for you?

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Debt consolidation after credit

In recent years, with the increased availability of credit, many people struggling with several monthly debt payments have attempted to use a debt consolidation loan to put all their debts into one more affordable payment, either by securing their debt on property, or through an unsecured loan.

Some people find that the debt consolidation loan interest rate is lower than the interest rates they’re currently paying on their other debt (credit cards and payday loans being typically expensive forms of credit).

So a debt consolidation loan can seem a tempting course of action – with just one single monthly payment, rather than trying to manage several other more expensive loan repayments.

Debt consolidation – the pros

In some circumstances, it may seem sensible to debt-consolidate.  If you can identify that you’re in debt difficulties before you’ve actually missed any payments, then your credit rating won’t be affected, assuming that Default Notices haven’t already been issued on the debts you owe.

If you choose a good debt consolidation loan with a cheaper interest rate than your other debts, then that should mean you’ll then have a lower monthly payment to one creditor. Your income and expenditure should help you decide what you can and cannot afford.

Debt consolidation – the cons

Some people who take out a debt consolidation loan subsequently take out more credit, or start using their credit cards again. This can compound their debt problem even more, of course, and can leave them even worse off than they were before.

If you take out a debt consolidation loan, you need to be totally sure that you won’t need to use your credit cards – or take out any other credit – while you’re repaying your debt consolidation loan.

Debt consolidation may be harder for people with poor credit ratings, and the high rates of interest offered to people falling into this category may not even cure the symptoms of unaffordable monthly debt repayments.

Secured loan interest rates are generally lower than unsecured loan interest rates, but to benefit from these you normally need to be a homeowner.

Debt Consolidation Loans – What Can You Do Next?

As a next step, contact PayPlan for free, sympathetic and immediate advice regarding the dangers of debt consolidation loans. Telephone free on 0800 280 2816 or use our debt help form; your free debt advice begins as soon as you contact us.